1. (20 pts.) A company wants to determine whether to keep or replace a piece of
ID: 1157953 • Letter: 1
Question
1. (20 pts.) A company wants to determine whether to keep or replace a piece of manufacturing equipment. The details for the two options are: Old Equipment: Requires overhaul to continue using, at a cost of $20,000. If overhauled, operating and maintenance costs will be $25,000 per year and the salvage value after 7 years is $o. Selling the equipment now will provide $60,000 in revenue. New Equipment: The new equipment will have maintenance and operating costs of $12,000 per year, and the salvage value after 7 years will be $35,000. If the MARR-15%, what is the maximum cost of the new equipment for which the company would choose to replace the old equipment?Explanation / Answer
PW for Old Machine=-20000-25000/1.15-25000/1.15^2-25000/1.15^3-25000/1.15^4-25000/1.15^5-25000/1.15^6-25000/1.15^7+60000/1.15^7=-101454.3
PW for New Machine=-X-12000/1.15-12000/1.15^2-12000/1.15^3-12000/1.15^4-12000/1.15^5-12000/1.15^6-12000/1.15^7+35000/1.15^7=-X-36767.24
then if PW of New Machine>PW of Old Machine
-X-36767.24>-101454.3
X+36767.24>101454.3
X>64686.8=64687
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